Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.
When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.
For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA documents.
In most cases, the Earnest Money held by the escrow company is credited towards the home buyer’s down payment and/or closing costs.
*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.
The Escrow Process:
Earnest Money is submitted to an escrow company with the accepted purchase contract
At the close of escrow, the EMD is credited towards the down payment and / or closing costs
If there are no closing costs or down payment, the EMD is refunded back to the buyer
Who Doesn’t Get Your Earnest Money:
Selling Real Estate Agent – A conflict of interest
Sellers – Too risky
Buying Agent – They shouldn’t have your money in their account
More Questions About Earnest Money? Call Us For Answers!
A native Phoenician serving Arizona Homeowners with over 16 years lending experience and currently the Vice President and Partner of Signature Home Loans LLC. Eddie has been a mortgage broker since January 2003.